How to Avoid Checkmate When Investing for Retirement

How to Avoid Checkmate When Investing for Retirement

When chess masters line up their pieces at the start of a game, they’ve each got the same resources. One of them may choose to make a strategic sacrifice in order to get a tactical advantage. For example, if White were to lose one of his 16 pieces in the beginning, he will have lost about 6% of his force.

On the other hand, near the end of the game, when each side battles with only a few soldiers, a single piece represents a much great percentage of the fighting force. Consider that if White loses one of his four final chessmen, that’s a 25% loss.

I met with a doctor recently who was nearing his endgame, i.e., retirement. He had gone to a “get-rich-quick” seminar, where the snazzy charts and graphs showed returns of 50% and more. He thought he would give one final boost to his financial position by implementing the ultra-risky strategies that he had learned. After investigating the scheme further, though, he saw that what had appeared on the surface to have great potential was really more of a casino. It would be like marching your last four pieces directly towards your opponent’s king. There’s a one-in-a-million chance that you’ll capture the prize on the sixty-four squares; more likely, you’ll just end up walking away a loser.

At the beginning of a chess game, just like at the beginning of your career, you should take some risks. Try a few investments that might have more volatility because, if they turn out sour, you’ll have the rest of the game (and your life) to implement new tactics. But as you approach the end, preserve your pieces and, only after you have done careful research and planning, then make a move. Don’t forget that in world championship chess games, a grandmaster might take many hours to contemplate a position before finally moving. Do you spend enough time planning your next move?

To read more about the relationship between risk and investment and other financial lessons you can learn from chess, click here.